If you’re like most workers, you might take your superannuation for granted. You probably don’t give it much thought, unless you’re nearing retirement.
But have you ever stopped to think about whether you’re receiving your full contributions? Most people just assume that their employers are paying the minimum required 9.5% rate. But what if they’re not? For thousands of Australians, that’s become an all too common reality.
According to a new report by the Australian National Audit Office, many employers aren’t pay their fair share. And they’re using insolvencies as a way to skirt their commitments.
Before you excuse businesses for going bust, it’s important to remember one thing. Even during bankruptcies, creditors usually have a say in how the assets are divvied up.
Non-compliant businesses evading superannuation contributions shouldn’t be any different. An employee’s superannuation should be viewed in the same way as a creditor debt when businesses go bust. Insolvencies shouldn’t simply absolve businesses of their superannuation commitments.
So just how bad is non-compliance within the industry? The report has some interesting things to shed on the matter.
Take the Australian Taxation Office’s record between 2011 and 2014. The ATO received an average of 18,000 cases of potential underpayments. Roughly half of these result in employers paying the money back. But that still leaves another 9,000 cases of non-compliance — every year.
ANAO found that, over four years, 8,000 of these non-compliance cases arose due to employer insolvencies.
The figures are no drop in the ocean either. Between 2011 and 2014, debts written off due to employer insolvency rose from $99 million to $233 million.
That’s a lot of money being sucked out of employee super funds.
And let’s not understate the impact of this either.
The first, and obvious, effect is that it damages retirement funds for Aussie workers. That alone is reason enough to clamp down harder on employers.
But it’s also important because the nation is still grappling with ways to reduce its reliance on age pensions. The government hopes to save billions by cutting back on pension entitlements.
For that to work, every Australian worker needs to have faith that their super is being paid out correctly. That’s simply not happening right now.
At this point, you might be asking yourself ‘so what’? 2,000 a year doesn’t seem so bad, right? But you should be asking yourself if you’re at risk of being cheated out of your super. It’s true, most Aussies won’t have to worry about it. But many will, and many more have already been affected by it. Nevertheless, some industries are at higher risk of employer non-compliance than others…
The industry most at risk of failing to pay super contributions
Cbus is one of Australia’s leading industry funds for construction workers. As a fund manager for over 700,000 workers, they say that non-compliance is rife in construction and building. They’ve recovered up to $110 million in unpaid superannuation in the last year alone from non-compliance.
That makes younger workers at high risk of being victims of non-compliance. The construction industry employs a large numbers of young male professionals. Quite often, these younger workers find themselves in small businesses with little professional oversight.
Cbus estimate that a 25-year-old could lose as much 14% of their retirement money over five years. You can imagine what it’s like to lose a sixth of an entire super fund. It’s enough to make a huge difference to any retirement.
What is the ATO doing to stop non-compliance in the industry?
The ATO is increasing its rate of winding-up orders against businesses over unpaid revenues. In fact, the number of ATO wind-up applications doubled between March and April. They’ve even been pursuing small businesses with debts amounting to as little as $100,000.
The ATO are serious about cracking down on non-compliance. They want employers to clean up their act. Either businesses pay their debts and super contributions, or they face the risk of a winding-up order.
But the ATO may also be contributing to the problem of non-compliance here. If a company gets wound up, then it ruins any chance an employee had of receiving their super contribution.
By acting so aggressively, the ATO may actually be doing more damage to affected employee funds. But that’s a risk they should be willing to take.
The ATO needs to protect the integrity of the superannuation system. Attacking non-compliance at its root is the best way to put all businesses on notice.
Contributor, Markets and Money
It’s becoming ever clearer that the superannuation industry is rife with abuse. But it’s not just employer insolvencies stealing your hard earned money. You could just as easily be the victim of hidden fees that slowly eat away at your retirement fund.
Markets and Money’s Bernd Struben says that it doesn’t have to be that way. Bernd is the Managing Editor of Port Phillip Publishing. He has more than 20 years of professional finance and management experience.
Bernd’s written a free report to help you devise a plan to protect your money. He’ll show you how to take control of your own destiny through your super. You’ll learn why you shouldn’t leave your savings in the hands of people who get paid regardless of performance.
Bernd will also talk you through the four core principles of a successful investment philosophy. That way you can use your super to the build the wealth you’ve already dreamed of.